Web Offers Global-Sized Challenges

The online prefix "www" stands for World Wide Web, but just how worldwide is the Internet? Globally, about $55 billion was spent online in 2000 according to Gartner, and as more countries become connected, global marketplace expenditures are expected to rise to about $400 billion by 2004. But even in the United States - the largest online shopping segment in the world - Internet sales accounted for less than 1% of total retail sales last year. Shoppers are still hesitant to buy online, especially in parts of the world where Internet technology is not advanced, there is a lack of security standards, and PCs are just beginning to become a household necessity.

But the hesitancy goes both ways. Retailers are also slow to explore international markets via the Internet - and perhaps they should be. Retailers must carefully evaluate whether purely electronic global expansion would be beneficial to the company. A small store doesn't need to invest $50 million into making its Web site global if its merchandise won't interest consumers abroad. Geri Spieler, research director at Gartner, and Terri Ghio, a consultant with Retail Wisdom, discuss what retailers need to consider when making the world in World Wide Web a reality for their businesses.

How has the Internet changed the global marketplace?

Geri Spieler (GS):It has allowed us to cross borders in ways we haven't before. For the countries that allow free access (not all do), I can look at a Web site that comes from Peru if I want to plan a trip to Machu Picchu. I can send an e-mail to a company in Peru from my home in California. The Internet has changed the globalization of the marketplace and allowed companies to sell internationally.

Terri Ghio (TG):The Internet makes the global marketplace more visible. Global travel started it and now immediate access to information makes the borders go away. The truly global marketplace is just barely starting to emerge. Too few e-tailers are actually marketing themselves beyond their home market. Many even refuse to accept orders from outside these territories. There has been better acceptance in the B2B (business-to-business) space, but it is still in its infancy.

Are retailers reluctant to sell internationally?

Geri Spieler (GS):Yes. When I am trying to sell an item, if I am not already a global company, it is going to change my Web store significantly. If I am a United States-based company, it is going to cost me a lot of money and a lot of functionality to take foreign currency, to deal with customs laws, taxation, and language. In practicality I have to know what the market will bring before I globally enable my Web store. Yes, I want to have Spanish speaking clients from Mexico, but does it mean I will sell something in Mexico? How many global customers will I get to justify the cost?

Terri Ghio (TG):Absolutely. There is a lack of control and a fear of the unknown among retailers. They're reluctant in part because they don't know how to do it and don't have the tools. To participate in a global marketplace, your systems need to be fluent in multiple languages and currencies. You need to understand a multitude of tax regulations, and you need to tackle the problem of really remote distribution. Many retailers already operate on a global scale with brick-and-mortar establishments around the world. These retailers have a leg up.

How can having a physical international presence help sell online?

Geri Spieler (GS):Distribution within a foreign country is faster, more reliable, and avoids customs costs and regulations. Amazon.com opened a distribution system in Japan because the country would not allow book sales that don't come out of Japan. So in order to integrate the Japanese market, Amazon.com had to distribute within the country. Another company called Recreation Equipment Inc. could do its distribution from the United States, but it takes a lot longer and is a lot more expensive. It partnered with a Japanese distribution center and rented space there, which made fulfillment of individual Web orders less expensive and faster.

What are some challenges retailers face when trying to sell online internationally?

Geri Spieler (GS):There are significant challenges when we talk about customs, taxation, duty, currency exchange, and language. On the surface, international selling may seem like a good idea, but you need to be sure that there is a substantial market overseas that will justify the cost of shipping your products there.

Terri Ghio (TG):Consumers are reluctant to do business with what they perceive to be foreign firms. This is especially true in xenophobic America. To be successful, e-tailers are going to need to have either a local "feel" or a truly global brand, something like Hermes or Sony. There really is not one big global market. A lot of local markets comprise the global marketplace.

How has technology broken the language barrier?

Terri Ghio (TG):When we can exchange information in a matter of seconds, it doesn't feel like we're thousands of miles - or even oceans - apart. Technology allows us to build a single infrastructure that supports multiple "personalities." For example, in Spain we need Spanish text and product descriptions along with currency calculations in euros, while in Tokyo we want Japanese and yen. The trick is to design a single system that supports all consumers instead of ending up with multiple disparate systems. However, retailers need to be aware that the Spanish spoken in Mexico is not the same as in Spain - sometimes the differences can even be offensive. Translation software works for about 70% of a Web site's text, but then retailers need someone from the specific country to validate it. The translation needs to be checked for contextual meaning in order to make international shoppers comfortable shopping online.

What needs to be different in an international retailer's system than one that only sells domestically?

Geri Spieler (GS):If you are international you need to have multi-address functionality. Your site must contain currency exchange information and the laws describing what you can sell where - you can't import everything into the United States or export everything to other countries. International banking laws also differ. Not every country allows credit cards to be used over a certain amount, so consumers use stored value cards. The cards hold a certain amount of money and an international consumer slides it through a reader attached to his computer that deducts the purchase amount. Retailers have to make sure they are compliant with alternative forms of payment.

What should a global retailer look for in a technology vendor?

Terri Ghio (TG):Experience. There is no substitute. Seek out vendors that have worked internationally and share your global view. For example, do they have offices in the major world markets? Are their employees - particularly their support employees - multilingual? Do they understand that multi-currency accounting requires operating in multiple currencies simultaneously, not just converting everything into the headquarters' currency? Not all countries have the same level of Internet access. Finding a single provider with the same consistency of service can be difficult.

How do retailers overcome the lack of international technology standards?

Terri Ghio (TG):There are no guarantees, but it's a reasonably safe bet that any proposed standard that cannot accommodate a large percentage of users will never actually become a standard. Don't go with anything proprietary. The frustration is that different countries are moving at different paces. There are dramatic differences not just from country to country, but from town to town. When retailers determine which markets they want to penetrate, they need to look at technology capabilities and also how the culture is driving technology decisions.

What does the future hold for global retailing?

Geri Spieler (GS):Worldwide there were about 150 million Internet users in 1998, and we expect that to be 450 million by the end of 2003. We are seeing a large growth globally - primarily North America, Asia Pacific (including Australia), and Western Europe. Eastern Europe is lagging behind, and Japan will see a rise in mobile commerce.

Terri Ghio (TG):A very critical component is a fail-safe customer interaction system - responding at Internet speed with immediate and relevant information by a live person in the language of the caller. I think companies that are looking to do global e-tailing have to tune into what each local market wants. Each one will be unique, and retailers will need a local presence for warehousing and distribution. I think call centers will be in international cities where multilingual people can cater to international shoppers.